Billionaire's art lawsuit drags in powerful collecting family

A widely watched lawsuit between a billionaire and top art tycoon has expanded to include one of the most private and powerful families in the art world.

Last week, a judge granted a motion by billionaire financier Ronald O. Perelman to depose members of the Mugrabi family as part of a lawsuit between Perelman and art megadealer Larry Gagosian. According to people familiar with the case, the depositions are scheduled for September and could delve into the financial relationships and dealings between the Mugrabis and Gagosian.

The financial dealings between Gagosian and the Mugrabis have long been the subject of speculation and media scrutiny in the art world, since the two often work together in buying, selling and trading millions of dollars worth of contemporary art. Gagosian, considered the most powerful art dealer in the world, has helped create superstars in artists like Jeff Koons, Damien Hirst and Cy Twombly and has galleries in New York, California, London, Paris, Rome, Geneva and Hong Kong.

The Mugrabis, who got their start in the garment trade, are now among the most active traders and collectors in the global art scene. The family—led by Jose and his sons Alberto and David—are especially big players in the market for pop artist Andy Warhol. Jose Mugrabi told The Wall Street Journal in 2008 that the family owned 800 Warhol pieces at the time.

Adam Jeffery | CNBC

Ron Perelman, chairman and CEO of MacAndrews & Forbes.

At the center of the Perelman lawsuit is a painting by Twombly called "Leaving Paphos Ringed with Waves." In court filings, Perelman's attorneys argue that Perelman expressed interest in buying the painting from Gagosian in late April 2011. Gagosian said the price was $8 million, according to Perelman.

About a week later, Perelman made an offer to buy the painting, according to the filings. But Gagosian told Perelman that it had already been sold to another buyer. Gagosian allegedly told Perelman that if he wanted to buy the piece, the new price would be $11.5 million. Perelman bought the piece for $10.5 million.

But in court filings, Perelman said he later learned that the higher price was the result of a "short round-trip transaction" between Gagosian and the Mugrabis.

"The striking jump in price, the lightening-fast chronology of events and the absence of a typical invoice for the sale, all call into question the propriety and bona fides of the sale," Perelman's attorneys said in court filings.

The court filings point to press reports describing how the Mugrabis and Gagosian "have been working together and using both private sales and public auctions to 'inflate prices and create the appearance of trading volume.'"

Perelman's suit alleges fraud by Gagosian in the transaction. Gagosian and Perelman were friends for decades, with Gagosian advising Perelman on many art deals and often attending social events and charity events together. They are also partners in the Blue Parrot, an East Hampton, New York, restaurant.

While the Mugrabi depositions next month are likely to focus on the Twombly painting, Perelman's attorneys may also probe other business dealings between Mugrabi and Gagosian. That could shine a light on their collaborations and reveal more about the inner workings of the high-end art market—one of the most opaque and unregulated large markets in the world.

The judge's order also requires the Mugrabis to submit documents connected to the Twombly sale.

An attorney for the Mugrabis didn't respond to requests for comment. A spokesperson for the Gagosian gallery didn't return calls or emails for comment.